Whether or not the pursuit of new revenue is killing your potential for profitable growth is, in some form or another, a question that business leaders are (or should be) asking on an ongoing basis.
It's no secret that new revenue doesn't necessarily translate into profits or profitable growth. But often times the reasons for this and the response to addressing this challenge are overlooked.
|The acquisition strategy
In the insurance industry, using an acquisition strategy to drive the growth of business and produce new revenue is common practice. Whether that strategy includes acquiring new salespeople, books of business, other agencies or all of the above, many insurance organizations look externally to increase revenue. But how profitable is that revenue?
In addition to the actual cost of acquisition — no matter what is being acquired — there are hidden and often unidentified costs that end up eating into profitability. For example, when an agency acquires another, most likely they will have different systems and processes. This creates a serious drain on resources and a lot of waste.
In turn, customer service levels may drop for both existing clients and the newly acquired, resulting in the loss of accounts and renewals. Moreover, employee morale can take a hit due to the additional stress and workload, leading to costly churn. Additional investments may be necessary to handle the new business. All of this impacts the profitability of an acquisition and profitable growth in general.
|Rethink ops to drive profit growth
That's not to say acquisitions can't lead to growth, of course they can and do. It's how that acquisition is "digested" by the organization that makes a difference. And that's when operations come into play. Operations are the foundation of any insurance organization and a key success factor in almost every aspect of business — including the profitability of all revenue.
Here's how you can start to rethink operations to drive profitable growth:
|1. Aligning operations to business strategy
While aligning operations to a business's strategy may seem obvious, often times businesses don't maintain this alignment over time. Here's an example: let's say an agency has identified the need to increase renewal retention. In order to effectively achieve this goal, operations must be aligned. This may mean automating certain tasks, infusing best practices into the process, or ensuring that there are sufficient resources in place during this cyclical activity. In short, the achievement of that goal is contingent on operations having the ability support it.
Insurance organizations need to find the best processes to serve their business strategy.
High-performing organizations understand that operations are the foundation of their business and a critical success factor in almost every activity related to growth.
2. Optimizing processes
Optimizing processes involves removing any sources of "waste" in operations to improve productivity. When we talk about waste we're referring to "any activity that doesn't provide value to the customer." This notion and the need to eliminate waste in operations can be attributed to Toyota's research in the 1950s, which spurred on the development of Lean processes and Six Sigma methodology. Removing waste and optimizing processes increases the profitability of each piece of business and creates the capacity to earn new business.
Once you are clear on sources of waste and drains on productivity, you can implement advanced solutions. This may mean new agency management software, or it may mean delegating routine and repetitive tasks to a business process management firm. These actions will free up your producers to achieve their core mission—generating new business and, thus, new sources of revenue for the organization.
|3. Talent management
The next step is to ensure the right people are performing the right tasks and that everyone is executing processes in a way that aligns with company goals, rather than cycling through unproductive work that fails to generate revenue.
From front-line customer service to C-suite leadership, developing and managing your talent for success is essential to improving productivity, performance and profitability. All employees, from the bottom up, should have access to learning opportunities and skills development to arm them for success. Effective talent management is critical to achieving growth, employee satisfaction and reducing costly employee churn.
|4. Managing by metrics: The power of analytics
An organization's business operations need measurable goals as much as employees do. That's why measurement is an integral part of the operations excellence process. After all, in order to manage to a goal, you need to be able to measure it.
Today's analytics capabilities allow us to measure key performance indicators (KPIs) and keep up-to-date on them in order to make improvements as needed. Analytics also provide the ability to extract insights and maximize contractual relationships.
What you measure will depend on what KPIs you are interested in managing to. Today's analytics allow companies to gain real insight into everything from productivity and performance — through to monitoring and tracking incentive programs — allowing organizations to proactively manage and improve in near real time. Analytics help create a continually improving environment.
|It's time to rethink operations
Achieving operations excellence is a dynamic pursuit; there is no "finish line," but a focus on continual improvement. This operations-first approach gives your business the necessary foundation to not only support but enable profitable growth — be it through acquisitions or organic — and respond to today's evolving market demands.
Dan Epstein is the CEO of New York City-based ReSource Pro LLC, a provider of insurance process efficiency solutions. Contact him at [email protected].
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